Fixed Income and Fixed Cost are two opposite categories of financial items. Fixed cost is an outflow or payment (expense) that a business incurs during the course of business. The nature of payment is in term of fixed amount that will occur after regular intervals. This cost is incurred with the passage of time it do not vary with the level of activity but after a specific longer duration rate of fixed cost will be upgraded, this would be incremental change as per changing market rates and inflation.
Examples of fixed costs incurred by a business are Rent, salaries, license fee, a fixed sum of electricity and other utility charges, insurance premium and interest payment. These costs are incurred after fixed intervals and a fixed amount will be paid irrespective of the volume of activity produced. These are indirect costs, which do not become part of production or service activity directly but still charge on apportionment basis to production activity while measuring the profit on this activity. Fixed costs are categorized as overheads.
On shorter term , fixed cost do not change but in longer term they exhibit a level of incremental change, So we can say fixed cost vary after a specific period of time. I-e rent payment will be fixed as per rent contract and after that period let say two years, this payment will be raised ,salaries need to be reviewed normally after a year so this cost will increase after a specific period and will remain fixed for a considerable period. Fixed cost are unavoidable costs that need to incurred any way .These cost do not matched or compared with the volume of production, having a standalone characteristic .But in order to measure profit per product or divisions, all costs including variable and fixed are charged.
Fixed income is the financial benefit that is received at fixed rate. This is a steady and secure mode of return on any investment. Any investment that yields a guaranteed rate of investment is a fixed income investment. Their rate of return may be low but it carries an element of security that it will not be reducing or disappears in case of financial fluctuation. Example of fixed income is, income earned on bonds and stock, interest income, pension funds received and social security benefits. The security provided is the promise made by the borrower in case of loan arrangement. As per the principal amount borrowed and duration of maturity of loan, an amount is decided to be paid after regular interval by the borrower and eventual payment of the principle amount at reaching maturity. Although rate of this income is may be 5% or 10 % of the total amount, less than the progressive rate of profits but still the positive aspect is there is no possibility of losses or outflows.
Risk attached with the fixed income is , there is no compensation for the rising pricing and commodities rates as per rising inflation. This is inevitable that in longer term, the resultant income will start reducing in order to manage rising expenses and gradually there will be financial difficulty for the person. Financial advisers, stress the need for having portfolios of investment with fixed as well as incremental income.2014-02-03